Aba section of Intellectual Property Law

Despite the finding that a material question of fact existed regarding the misappropriation of Kirby’s likeness by Sega, the court determined that the transformative use of the material provided an affirmative First Amendment defense to any claim of misappropriation.

The court applied Comedy III Prods. v. Gary Saderup, Inc. 25 Cal. 4th 387, 106 Cal. Rptr. 2d 126, 21 P.3d 797 (2001), as interpreted by Winter v. DC Comics 30 Cal. 4th 881, 134 Cal. Rptr. 2d 634, 69 P.3d 473 (2003), to find that Kirby was the raw material for Ulala, if anything. As the court explained, “notwithstanding certain similarities, Ulala is more than a mere likeness or literal depiction of Kirby. Ulala contains sufficient expressive content to constitute a ‘transformative work’ under the test articulated by the Supreme Court.” Such changes included the anime style drawing, the height of the animated character, and the difference in dance style from Kirby.

The Kirby Court rejected a requirement suggested by the plaintiff that work relate to the person parodied, requiring the work to “say something–whether factual or critical or comedic” about Kirby the public figure in order to receive First Amendment protection.” The rejected approach would have tied the transformative test to the copyright fair use analysis applied by the California Supreme Court in Comedy III and Winter.

As applied in Winter and Kirby, California’s fair use test is evolving into a transformative test. As described in Kirby, the very act of rendering a live person’s likeness into an avatar was transformative. From the description used by the court, a translation from photograph to avatar may well be sufficiently transformative to provide a First Amendment defense to misappropriation. Such an interpretation creates a very low threshold for a transformative act. Moreover, since the transformative test does not take the commercial nature of the use into account, it may allow for much greater exploitation of an actor or athlete’s identity than had been historically permitted.

E.S.S. Entm’t 2000, Inc. v. Rock Star Videos, Inc., 444 F. Supp. 2d 1012, 1027 (D. Cal. 2006).
Summary: Use of trademark and trade dress in Grand Theft Auto: San Andreas found to be nominative fair use and expressive literary content protected by the First Amendment.

In E.S.S. Entm’t 2000, Inc. v. Rock Star Videos, Inc., a district court applied the nominative fair use approach of the Ninth Circuit to a claim for trademark and dress infringement when Play Pen Gentlemen's Club’s trademarks “Play Pen” and “Totally Nude” were parodied within the video game Grand Theft Auto: San Andreas. The plaintiff made four claims – (1) trade dress infringement and unfair competition under section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); (2) trademark infringement under California Business and Professions Code § 14320; (3) unfair competition under Business and Professions Code §§ 17200 et. seq.; and (4) unfair competition under California common law.

The Grand Theft Auto utilizes fictionalized cities featuring thousands of animated locations. Three cities were created for Grand Theft Auto: San Andreas — “Los Santos,” “San Fierro,” and “Las Venturas” for the cities of Los Angeles, San Francisco, and Las Vegas.

The court began its analysis by reviewing the applicability of fair use and nominative fair use for the publishers of the video game. It determined that the three-prong nominative fair use analysis was applicable to the conflict. Under that test, “a defendant must satisfy three requirements: (1) “the plaintiff's product or service in question must be one not readily identifiable without use of the trademark”; (2) “only so much of the mark or marks may be used as is reasonably necessary to identify the plaintiff's product or service”; and (3) “the user must do nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder.””

The court acknowledged the circularity of applying a nominative fair use analysis since “the lack of anything that suggests sponsorship or endorsement – is merely the other side of the likelihood-of-confusion coin.” The game’s “Pig Pen” logo and trade dress of Play Pen did not attempt to refer to the Play Pen, but only to describe its own product. As a result, the court found the test satisfied since there was no attempt in the game play to associate the game with the Play Pen goods or services.

Had the court instead applied the likelihood of confusion analysis rather that applying “the other side of the coin” to require an affirmative defense, the court would have had far less difficulty in dismissing the claim because there was no association with any good or service being offered by the plaintiff.

The district court also afforded a First Amendment defense to the defendants. It applied the in Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989) balancing test. As the court explained, “[t]he Rogers balancing test requires that courts construe the Lanham Act “‘to apply to artistic works only where the public interest in avoiding consumer confusion outweighs the public interest in free expression.’” (Id. quoting Rogers, 875 F.2d at 999 (emphasis original)).

The First Amendment limitation on trademark rights attempts to balance the limited property rights of the trademark holder with the public’s interest in an open marketplace of ideas and a speaker’s right to communicate. “When unauthorized use of another’s mark is part of a communicative message and not a source identifier, the First Amendment is implicated in opposition to the trademark right.” (Id.) Increasingly, courts have recognized that were they “to ignore the expressive value that some marks assume, trademark rights would grow to encroach upon the zone protected by the First Amendment.” (Id.)

Whereas the original Rogers balancing test envisioned that no Lanham Act claim was available for use of trademarks within literary works, the test now being applied has expanded to articulate why those uses are beyond the reach of Lanham Act liability. While the result is likely to remain the same, this required defendants to demonstrate that the use of the trademarks within the game play had artistic relevance to the game, and whether the use of the trademarks was explicitly misleading as to the source or content of the work. Having satisfied the court that the use of the parodied trademarks in the game were relevant to the work and not misleading as to the source of the work, the court granted a First Amendment defense to the Lanham Act claims as a matter of law.
Sexual Predator Identifications and Removals; Demand Letter from Attorneys General
Summary: Substantial new steps are being developed to require protection of minors from potential sexual predators beyond that required under existing law on MySpace. MySpace accused of continuing its failure to stop unauthorized access to private data.
On May 14, 2007, six attorneys general raised concerns about the design of the myspace website, “the failure to require parental permission, and the lack of safeguards necessary to protect our children.” According to the letter and associated press release, “data from Sentinel Tech Holdings, a company working with MySpace, indicate that thousands of known sex offenders may have been confirmed as MySpace members.” Ten months later, on January 14, 2008, a growing demand from states attorneys general has led to an agreement between MySpace and 49 attorneys general. According to information released by Connecticut Attorney General Richard Blumenthal:

MySpace acknowledged in the agreement the important role of this technology in social networking safety and agreed to find and develop on-line identity authentication tools. The attorneys general have advocated age and identity verification, calling it vital to better protecting children using social networking sites from on-line sexual predators and inappropriate material.

Other specific changes and policies that MySpace agreed to develop include: allowing parents to submit their children's email addresses so MySpace can prevent anyone using those addresses from setting up profiles, making the default setting “private” for profiles of 16- and 17-year-olds, promising to respond within 72 hours to inappropriate content complaints and committing more staff and/or resources to review and classify photographs and discussion groups. (http://www.ct.gov/AG/cwp/view.asp?A=2795&Q=404000)

Only the state of Texas remains unsatisfied with the results.

Notwithstanding the significant commitments made by MySpace and similar commitments made by Facebook as a result of an investigation by New York, Wired.com reports that a “backdoor in MySpace's architecture allows anyone who's interested to see the photographs of some users with private profiles.” Wired.com’s article recounts voyeuristic and commercial exploitation of the MySpace privacy flaw which has been continuing for months and which remained to be fixed despite the agreement. According to Business First, Last spring, the pressure from the attorneys general efforts resulted in MySpace removing 29,000 registered sex offenders from the site. (http://www.bizjournals.com/louisville/stories/2008/01/14/daily5.html?ana=from_rss)

Unlike actions by the Federal Trade Commission by companies such as Imbee.com, which has resulted in fines for failing to comply with the Children’s Online Protection Act (COPA) (http://www.ftc.gov/opa/2008/01/imbee.shtm), the agreement is not based on specific allegations of criminal violations by MySpace of COPA or other privacy laws. The agreement extends the protections of COPA beyond the age specified under COPA or could be enforced by direct legal action.

A number of other specific obligations were made by MySpace as part of the agreement. Those listed by the attorneys general include:

• 
  Compile a registry of email addresses provided by parents who want to restrict their child's access to the site. MySpace will bar anyone using a submitted email address from signing in or creating a profile.
  
• 
  Strengthen software identifying underage users;
  
• 
  Retain a contractor to better identify and expunge inappropriate images;
  
• 
  Obtain and constantly update a list of pornographic web sites and regularly sever any links between them and MySpace;
  
• 
  Implement changes making it harder for adults to contact children;
  
• 
  Dedicate meaningful resources to educating children and parents about on-line safety;
  
• 
  Provide a way to report abuse on every page that contains content, consider adopting a common mechanism to report abuse and respond quickly to abuse reports;
  
• 
  Create a closed “high school” section for users under 18.
  

Copies of the Joint Statement on Key Principles of Social Networking Sites Safety and appendices on design and functionality changes and initiatives are available from the Massachusetts attorney general statement at http://www.mass.gov/?pageID=pressreleases&agId=Cago&prModName=cagopressrelease&prFile=2008_01_14_myspace_agreement.xml.

In January 2008, Linden Labs, the operator of Second Life announced that it was substantially revising the operation of banking services inside the virtual world. Though described as a ban on virtual banking, the actual announcement may also be viewed as an invitation for the next generation of electronic commerce entities to begin to operate. As described by the Second Life blog. “As of January 22, 2008, it will be prohibited to offer interest or any direct return on an investment (whether in L$ or other currency) from any object, such as an ATM, located in Second Life, without proof of an applicable government registration statement or financial institution charter.”

Linden Labs explained the need for action was precipitated by the collapse of Ginko Financial in August 2007. Ginko had been promising 40% interest rates, and many so-called banks throughout Second Life appear to have been operating classic ponzi schemes.

While the ponzi schemes highlight the most extreme abuses within the Second Life economy, all unregulated financial transactions offer the same potential problems. As soon as a virtual world includes the ability to exchange any nation’s currency with fictional money, the potential for fraud exists. If deposits are guaranteed or interest is paid, then the activity is either a banking function or a sale of securities. If an anonymous avatar can trade in various currencies using Linden Dollars; offer unregulated interest rates; and sell financial products without ever verifying the identity of the parties, then most state and federal regulators can apply appropriate securities, banking, and consumer protection laws to the perpetrators of the scheme. Linden Labs is far better off having regulation than finding itself the subject of lawsuits from various jurisdictions within and outside the U.S.

The ban necessarily extends beyond mere banking transactions to any monetary exchanges that are subject to blue sky laws, know your customer obligations or other state and federal regulation. The need for an “applicable government registration statement” highlights that such entities could certainly come from outside the United States, but this still raises the question whether transfers by U.S. citizens to these entities may require additional U.S. licensure. Under the terms of service agreement, Linden Labs identifies California as the state law under which its contract should be governed, so California jurisdiction is certainly implicated.

The ban should also create the opportunity for legitimate financial businesses to engage in Linden dollar exchanges. Such banks may require that the consumer disclose his or her identity as part of the initial sign-up process, but nothing should prohibit the bank from allowing that customer to use an avatar-based identity thereafter. This destroys true anonymity, but will be sufficiently private for a large portion of the market. The ease with which international interactions take place in Second Life still provide a sufficient basis for expecting a robust internal economy which would benefit by legitimate banking services.

MySpace, Inc., purveyor of the popular social networking Web site myspace.com, sued Wallace, operator of the Web sites, freevegasclubs.com and real-vegassins.com, under the federal CAN-SPAM Act⁹⁴ and under California state law.⁹⁵ MySpace alleged that Wallace set up some 11,000 fictitious MySpace accounts through “bots,” or automated software means, and then used those accounts to send numerous unsolicited email messages, or spam, regarding its gambling sites to legitimate MySpace account holders. This spam allegedly circumvented the terms of use governing behavior on myspace.com.

MySpace sought and prevailed, in part, in obtaining a preliminary injunction against Wallace. Under 15 U.S.C. § 7704(b)(2), however, did not prevail because the Court held that MySpace was not likely to succeed on the merits of its bot-related claim because it failed to provide adequate evidence demonstrating that Wallace’s set-up of the subject accounts could only have been achieved by bots.

Statement of Facts:

Wallace sent messages to MySpace members to promote his Web sites, freevegasclubs.com and real-vegassins.com. Wallace’s Internet business generates revenues of some US$1 million each year.

These messages allegedly directed legitimate MySpace members to log in on a counterfeit Web site modeled on the MySpace log-in page. Account holders then did so, enabling Wallace to allegedly harvest their user identification and password log-in information.

With this information in-hand, Wallace allegedly sent out almost 400,000 promotional messages to other MySpace account holders with those messages appearing to originate from the MySpace account holders whose log-in information was stolen. In addition, he allegedly posted some 890,000 related comments to the MySpace pages of other account holders.

As became key, however, to its allegation under Section 7704(b)(2), MySpace did not establish the dates and times on which the subject MySpace accounts were created or on the corresponding American Online (“AOL”) email accounts were created. These AOL accounts were used as part of MySpace’s verification process in the establishment of new MySpace accounts.

Summary of Legal Issues:

The principle legal issue before the Court was whether to grant MySpace’s motion for preliminary injunction.⁹⁶ To prevail on its motion, MySpace had to satisfy either one of two alternatives. To summarize the applicable standard, the movant must show a likelihood of success on the merits and the possibility of irreparable harm, or it must show that serious questions going to the merit were raised and the balance of hardships tips sharply in its favor.⁹⁷

The 2003 CAN-SPAM Act (“Act”) regulates the transmission of commercial email and prohibits certain conduct.⁹⁸ Relevantly here, it prohibits the use of false, misleading, deceptive information; prohibits the use of “bots” to create multiple email accounts; and requires certain contact information to be contained in commercial email messages.⁹⁹

Whether messages sent solely within MySpace are “electronic mail messages” under the CAN-SPAM Act.

MySpace’s private right of action hinged upon whether Wallace’s messages met the statutory definition of “commercial electronic mail message” under the Act. The Court held that they did.¹⁰⁰

The CAN-SPAM Act defines a commercial email message as “a message sent to a unique electronic mail address.”¹⁰¹ A “unique electronic mail address” under the Act is:

a destination, commonly expressed as a string of characters, consisting of a unique use (commonly referred to as the ‘local part’) and a reference to an Internet domain (commonly referred to as the ‘domain part’), whether or not displayed, to which an electronic mail message can be sent or delivered.¹⁰²

Finally, the Act defines “domain name” as “any alphanumeric designation which is registered with or assigned by any domain name registrar, domain name registry, or other domain name registration authority as part of an electronic address on the Internet.”¹⁰³

Wallace argued that his messages were not “electronic mail messages” under the Act because the addresses to which those messages were sent had no a domain name and had no route, remaining instead entirely within the MySpace system.

The Court rejected Wallace’s argument, holding that the MySpace addresses to which Wallace sent messages were “destinations,” a word that the Act exemplified in a commonly-occurring, but not exclusive form, that an email address consisting of a local part followed by a domain part. The Court explained that such an interpretation was proper because Congress presumably had knowledge of other forms of electronic communications, such as instant messaging, when it passed the Act in 2003; and because this interpretation was in keeping with the Act’s stated purpose to curtail the rapid and detrimental increase in commercial email that overburdened email systems.¹⁰⁴

Likelihood to Prevail on the Merits.

Having concluded that the Act applied to Wallace’s message, the Court considered the likelihood that MySpace would prevail on the merits. The Court held that MySpace would likely prevail under three of four asserted provisions of the Act, i.e., under Section 7704(a)(1) regarding the use of false or misleading header information; Section 7704(a)(3) regarding a pattern or practice of sending commercial email without a functional return email address by which to, within at least forty (40) days of the message, request that no more messages be sent; and Section 7704(a)(5) regarding the clear and conspicuous identification of the message as an advertisement or solicitation.¹⁰⁵ Note that the Act does not define “pattern or practice,” and the Court illuminated the meaning of this element by reference to other circuit court cases.¹⁰⁶

The Court held, however, that MySpace was not likely to prevail on the merits of its claim under Section 7704(b)(2), or the ‘bot’ clause, which prohibits the use of scripts or other automated means to register for multiple electronic mail accounts or online user accounts.¹⁰⁷

In its treatment of false or misleading email header information, Section 7704(a)(1) includes a prohibition on technically correct information that includes an originating electronic mail address, domain name, or Internet Protocol (“IP”) address to which access for the purpose of initiating the challenged message was obtained by false or fraudulent pretenses or representations. Unlike with other sections of the CAN-SPAM Act, MySpace did not need to demonstrate Wallace’s pattern or practice of conduct under this Section.¹⁰⁸

MySpace asserted that Wallace obtained some 342,000 MySpace.com members’ user names and passwords through his Web sites that had been design to resemble the MySpace log-in Web page. Those members were directed to these copycat sites by messages sent by Wallace. After harvesting their log-in information, Wallace hijacked those MySpace members’ accounts to send out some 400,000 messages, conduct clearly prohibited by the Act.¹⁰⁹

MySpace claimed that Wallace similarly violated Section 7704(a)(3) in that recipients replying to Wallace’s messages sent through other MySpace members’ accounts would be directed to the unwitting members whose accounts were used to send the message, and not to Wallace, the message sender. MySpace presented evidence that Wallace-hijacked member accounts were used to send violative messages on at least three occasions, including once after it filed its motion for preliminary injunction in this case.¹¹⁰ The post-filing occasion involved a group of 110,000 messages sent from 76,200 MySpace member accounts within a forty-four day time period.¹¹¹

MySpace alleged that Wallace’s 400,000 messages sent via hijacked member accounts were not identified as advertisements and lacked other information and that this demonstrated a pattern of or practice of violative conduct as required by Section 7704(a)(5). Wallace countered that the messages were not commercial, but rather invitations to view pictures, electronic cards, or other non-commercial material through a “Tell-a-Friend” service. He also argued that the messages did contain the required return email address, those being MySpace return addresses.¹¹²

Section 7702(2)(a) defines “commercial electronic mail message” as any email message, irrespective of its appearance, for which the primary purpose is the commercial advertisement or promotion of a commercial product or service, including content on a Web site operated for a commercial purpose.¹¹³

Under this definition, the Court determined that MySpace was likely to prevail on the merits because the messages did not contain the required clear and conspicuous identifications of advertisement or solicitation and other required components under Section 7704(a)(5).¹¹⁴ Further, even though the messages contained return addresses, those addresses were wholly ineffectual for the purposes of opting out, given that Wallace, the commercial solicitor, would never receive those opt-out replies.¹¹⁵

Having demonstrated its likelihood of succeeding on the merits on these three claims under the CAN-SPAM Act, MySpace fell short on its “bot clause” claim under Section 7704(b)(2). There, it put on evidence of the creation of the 11,000 MySpace profiles, 2,000 of which share the same name and all of which were registered using similar AOL email addresses. Despite these large numbers of profile creations, the Court held that this fact did not compel the conclusion that the Wallace used an automated bot to set up the profiles.¹¹⁶ MySpace did not put on any evidence as to the timeframe in which the profiles were created or as to how a bot could circumvent its set-up procedure’s verification step, a step designed to prevent automated registration.¹¹⁷

The Court acknowledged that it may not have been appropriate for MySpace to disclose its verification step in open court. It did analyze MySpace’s profile set-up procedure and the estimated time required to carry it out, the Court estimated that a single person without the aid of a bot could create the subject profiles within twenty-three eight-hour days. Even though the Court viewed this as unlikely, it held that MySpace could not demonstrate its likelihood to prevail merely by an inference that Wallace used a bot because he set up 11,000 member accounts over an unspecified period of time.¹¹⁸

Possibility of Irreparable Harm.

As to this second prong of the applicable standard, MySpace claimed that it had suffered irreparable harm by the clogging of its network by Wallace’s messages, resulting in the usurpation of bandwidth and degradation of its members’ MySpace experience and in delivery-related costs, those are, the costs of its attempts to thwart Wallace’s activities. MySpace also said that the 800 member complaints lodged in response to Wallace’s activities demonstrated that its reputation and good had suffered. MySpace also incurred substantial costs in detecting, investigating, and remedying Wallace’s conduct, including its removal of 290,000 unauthorized hyperlinks and more than 890,000 comments posted throughout the MySpace network.¹¹⁹

The Court agreed that MySpace had satisfied the irreparable harm requirement, given the inability to quantify reputational harm. Further, the Court held that the occurrence of 800 complaints was a substantial number and constituted injury to Plaintiffs goodwill. The Court was not disturbed by the numeric discrepancy between 800 complaints in response to 400,000 messages, noting that members could not be expected to complain about each spam message they received because they would spend as much time doing so as they would responding to legitimate email. Furthermore, the Court stated that because Wallace’s messages misled members as to his affiliation with MySpace, this conduct impacted the quality of the members’ experiences with MySpace services and that impact was also irreparable harm. Thus, MySpace succeeded on the irreparable harm element of their motion for preliminary injunction.¹²⁰

Balance of Hardships and Public Interest.

MySpace won decisively in demonstrating that the balance of hardships tipped sharply in its favor and that the public interest was served in enjoining Wallace’s illegal conduct.¹²¹ Under its hardship analysis, the Court reiterated the evidence of complaints regarding Wallace’s conduct to MySpace and his continuation of the challenged conduct after MySpace’s filing of the instant motion. MySpace also asserted that, absent an injunction, it would be difficult to technically curb Wallace’s conduct, such by blocking his IP addresses, without also curbing that of legitimate users. Even if MySpace were able to block Wallace’s IP addresses, the Court noted Wallace’s conduct in another case, Compuserve v. Cyber Promotions, Inc., 962 F. Supp. 1015, 1019 (S.D. Ohio 1997), in which he modified his equipment and messages to circumvent similar blocking software.¹²² Having delineated the hardships for MySpace, the Court held that Wallace would experience no hardship from being enjoined from committing further violations of the CAN-SPAM Act.¹²³

On the public interest prong, the Court stated that Wallace’s conduct fell squarely within that which Congress found to be detrimental when it enacted the CAN-SPAM Act.¹²⁴

Holding:

The Court granted MySpace’s motion for a preliminary injunction order, in part, because MySpace succeeded in satisfying the applicable legal standard on all points with the one exception of the likelihood of its success on the bots claim under Section 7704(b)(2).¹²⁵

The Court agreed that the scope of injunction sought by MySpace was overbroad on First Amendment grounds.¹²⁶ The Court narrowed that scope, set MySpace’s bond at $50,000, well below its requested $1 million, and enjoined Wallace from: (1) accessing or using the MySpace.com Web site, Internet messaging services, or any other services offered by or through MySpace; (2) establishing or maintaining MySpace profiles; (3) referring to MySpace in connection with unsolicited commercial electron communications; (4) using any MySpace logo or graphic, interface, or other presentations that approximate or resemble the MySpace log-in page; (5) inducing MySpace members to provide identifying information; and (5) encouraging, facilitating, enabling or inducing any person or entity to do any of the above.¹²⁷

Points of Interest for Lawyers Whose Clients Do Business in Virtual Worlds:

Lawyers practicing in virtual world matters take away several important learnings from MySpace, Inc. v. Wallace. First, this case teaches that the CAN-SPAM Act defines “commercial email message” to encompass messages sent entirely within a single domain. Second, it applies the Act to a case in which the defendant utilized pretexting to steal identification information from members of an online community and in the form of messages appearing to be affiliated with a legitimate community organizer and to hijack those members’ accounts for its illegal purposes. Third, it gives meaning to the Act’s undefined “pattern or practice” element.

Fourth, this case demonstrates the level of evidentiary support that does not suffice to establish likelihood to prevail on a Section 7704(b)(2) claim that the defendant used outlawed automated means to accomplish its commercial email messaging. Particularly, it shows that the courts will require more than a tenuous inference of the use of automated means, even when it seems highly unlikely that the challenged conduct can have occurred by other than by unlawful automated means.

Fifth, this case recognizes that irreparable harm can be caused by the degradation of a plaintiff’s customers’ experiences in using its online services and by the likely ultimately ineffectual efforts that plaintiff can undertake to protect its operations and its customers’ experiences. Sixth, the decision in this case indicates that a court will examine other cases in which the defendant’s similar conduct has been challenged to infer how that defendant will respond to protective actions undertaken by the plaintiff. Eighth, the Court’s analysis and redrafting of the scope of the preliminary injunction granted in this case provides helpful guidance to attorneys seeking narrowly tailored injunctive relief for their clients in virtual world matters.

Finally, given the facts of this case, one wonders whether MySpace considered simultaneously bringing a cause of action under consumer protection law to challenge Wallace’s apparent pretexting as a means of stealing MySpace members’ identification information, or at least referring the case of action by the Federal Trade Commission or one or more state attorneys general.¹²⁸ Additionally, MySpace would also seemed to have had an intellectual property claim on copyright, trademark, or trade dress claims for Wallace’s copying or knock off of the MySpace log-in page. These would seem likely additional means of combating his wrongful actions.

Video Software Dealers Ass’n v. Schwarzenegger: A Rising Ninth Circuit Case on the Constitutionality of States’ Regulation of Minors’ Access to Violent Video Games

Introduction:

Video Software Dealers Ass’n v. Schwarzenegger holds great interest for attorneys practicing in virtual world matters because it decides the applicable legal standard governing the State’s regulation of violent video game content and the access of minors to that content.¹²⁹

Although the matter is pending appeal in the Ninth Circuit, the latest holding by the federal district court establishes an apt legal standard by which states may constitutionally regulate the distribution of violent video game content to minors. In addition, the two district court’s decisions highlighted infra provide excellent overview and analyses of the treatment of this constitutional issue with regard to violent video games in other circuit and district courts.

In this case, two video gaming industry associations, Video Software Dealers Association¹³⁰ and Entertainment Software Association (collectively “VSDA”), filed suit against the governor of California and other state and local officials to block the entry into force of a California state statute¹³¹ that required certain labeling of violent video games and prohibited the sale or rental of such games to minors (“Act”). VSDA challenged the constitutionality of the statute on the bases that video grams are forms of expression protected under the First Amendment; that the labeling requirement also ran afoul of the First Amendment; and that the statute was impermissibly vague.¹³²

The enacted law was set to go into effect on January 1, 2006.¹³³ VSDA won a preliminary injunction order a day earlier when the Court surveyed judicial decisions in similar challenges and determined that strict scrutiny was the applicable legal standard for the protected expression claim.¹³⁴ The Court considered, but did not decide the applicable standard as to the claim regarding the labeling requirement.¹³⁵ As to the vagueness claim, the Court determined that VSDA had not shown its likelihood on the merits.¹³⁶ As to the two First Amendment claims, however, the Court held that VSDA had at least raised serious questions going to the merits and that the balance of hardships tilted strongly in VSDA’s favor.¹³⁷

The parties subsequently cross-filed motions for summary judgment, and the Court entered an order on August 6, 2007, granting VSDA’s motion and entering a permanent injunction against the enforcement of the statute.¹³⁸

The Court reiterated the critical nature of free speech rights, that children were entitled to significant free speech protections, and that freedom of speech protections are not carte blanch, but that governments can place some limits on defamation, incitement, obscenity, and pornography made with children.¹³⁹

The Court then turned to the parties’ respective arguments as to the applicable legal standard for determining constitutionality under the First Amendment. The defendants argued for the application of the standard in Brandenburg v. Ohio, 395 U.S. 444 (1969) (per curiam). The plaintiffs argued for the applicability of Ginsburg v. New York, 390 U.S. 629 (1968).¹⁴⁰

The Court set forth findings made by the California legislature to justify the need for the Act, as follows:

1. 
   Exposing minors to depictions of violence in video games, including sexual and heinous violence, makes those minors more likely to experience feelings of aggression, to experience a reduction of activity in the frontal lobes of the bran, and to exhibit violent antisocial or aggressive behavior.
   
2. 
   Even minors who do not commit acts of violence suffer psychological harm from prolonged exposure to violent video grams.
   
3. 
   The state has a compelling interest in preventing violent, aggressive, and antisocial behavior, and in preventing psychological or neurological harm to minors who play violent video games.¹⁴¹
   

The Court noted that Ginsburg recognized that youth are to be considered differently than adults under the law, but also that Ginsburg, which dealt with expression on the grounds of obscenity, had not been applied by the Supreme Court or was proper to extend to limitations on the access of minors to other categories of expression.¹⁴⁴

The Court then considered the applicability of a media violence case, Winters v. New York, 333 U.S. 507 (1949). In Winters, the state court of appeals equated violent content to sexual content with respect to indecency or obscenity. On that basis, the lower court upheld a conviction under a statute outlawing any distribution, including to non-minors, of publications principally comprised of “criminal news, police reports, or accounts of criminal deeds, or pictures, or stories of deeds of bloodshed, lust, or crime.”¹⁴⁵ Winters struck down the New York statute as unconstitutionally vague, but also stated that its holding did not mean that it was impermissible for a state to punish the circulation of objectionable material, provided that it was not protected under the First Amendment, or that states were “prevented by the requirements of specificity” from their duty to eliminate the evils such objectionable material produce. Having thus analyzed Winters, the Court said that a state could regulate violent expression as in the Act’s described violent video games and that Winters implied that a narrowly-drawn regulation could appropriately do so.¹⁴⁶ Further, the Court said that states could have a compelling interest in restricting minors’ access to violent video games if their exposure to the games’ depictions of violence caused the children to experience aggressive feelings or exhibit violent antisocial or aggressive behavior.¹⁴⁷

Turning to cases after Winter that dealt with limitations on minors’ access to violent videos, the Court observed that all of these cases have held that the First Amendment bars those limitations, either under the theory that Ginsburg cannot be expanded beyond obscene content or on the ground that the causal connection between children’s exposure to violent video games and their feelings of aggression or antisocial behavior has not adequately been established. The Court went on to summarize the holdings in these cases.¹⁴⁸ Although none of those cases represents binding authority, having not originated from within the Ninth Circuit, the Court nevertheless paid heed to them as indicative of strong antagonism by the courts toward such laws.¹⁴⁹

Having considered the plaintiffs and defendants’ propositions, the Court held that the applicable standard was that set forth in Sable Communications of California, Inc. v. FCC, 492 U.S. 115, 126 (1989), which requires that to be constitutional, California’s content-based regulation limiting the access of minors to violent video grams “must promote the compelling interest of protecting the physical and psychological well-being of minors by the least restrictive means and the means must actually further the articulated interest.”¹⁵⁰ Under Sable, the Court held that, although the Act promoted a compelling interest, it was unconstitutional because it did not represent the least restrictive means and that the defendants had not shown that the Act actually furthered the articulated interest.¹⁵¹

Conclusion:

This case holds great interest for lawyers practicing in virtual world matters because it decides the applicable legal standard governing the State’s regulation of violent video game content and the access of minors to that content. Although the matter is pending appeal in the Ninth Circuit, the Court’s adoption of the standard in Sable seems particularly apt, given its special consideration of the compelling interest of the State in protecting children, but its continued rigor in sharply confining a State’s authority to regulate violent video game content and insisting that such a State so regulate without exceeding the bounds of that authority.

In addition, the Court’s decisions in granting VSDA’s summary judgment and preliminary injunctions motions serve as excellent resources for the overview of the treatment of this constitutional issue with regard to video games in other circuit and district courts.

The defendants have appealed the district court’s dispositive ruling and, as of March 2008, the matter is now pending before the United States Court of the Appeals for the Ninth Circuit. The eventual ruling by the United States Court of Appeals for the Ninth Circuit will add to the meaningful understanding of this issue across the circuits.

Second Life is a virtual world platform owned and operated online by Linden Research, Inc. at http://secondlife.com. Second Life is an Internet-hosted interactive computer simulation by which participants, through their virtual alter-egos, or avatars, see, hear, use, and modify simulated objects within the computer-generated environment. Linden counts the number of distinct Second Life accounts at more than nine million throughout the United States and in many foreign countries. Commerce within Second Life, or “in world,” each day exceeds one million dollars.¹⁵⁵

Florida-based Eros is one of the world’s most successful merchants in world where it makes and sells virtual adult-themed objects.¹⁵⁶

Chronology of the Case & Discovery:

Eros originally filed suit on July 3, 2007 against a John Doe, who was also known as “Volkov Cattenaeo” in Second Life and otherwise as “Aaron Long.” Eros then filed an ex parte emergency motion for leave to issue subpoenas and to conduct related discovery as to Linden Research, Inc. (“Linden”), the owner and operator of Second Life, and to PayPal, the online payment processor. The magistrate granted this motion.

Eros then filed a second ex parte emergency motion for leave to issue subpoenas and conduct related discovery, which the magistrate granted on September 5, 2007.

According to a declaration filed with that second motion by Eros’ CEO, Kevin Alderson, Defendant John Doe gave an interview to a reporter in world and claimed that Doe had provide false identifying information both to Linden and to PayPal and that he had no permanent address in the real world. Doe told the reporter that he had sold fifty copies of two of Eros’ virtual products, as named below, and had given the proceeds of those sales to another individual.¹⁵⁷

The interview was published and stated that one of Eros’ most popular products was the SexGen bed,¹⁵⁸ which contained more than 150 sex animations and sold for L$12,000, that is, Linden dollars, the currency in world, or $45.11 in real world currency. Doe reportedly sold the SexGen bed for L$4,000, sharply undercutting Eros’ price and market. The article reported that Eros had sold some 100,000 SexGen beds.¹⁵⁹

Alderman declared that Eros had obtained a number of Internet protocol (“IP”) addresses associated with Doe’s activities. With that information in hand, Eros sought to obtain real world identification, address, payment, and other information about Doe through the Internet Service Providers, or “ISPs,” associated with those IP addresses, i.e., AT&T and Charter Communications. Eros also sought from the ISPs Media Access Control, or “MAC,” and Ethernet Hardware Address, or “EHA,” numbers by which to identify the actual computers associated with Doe’s IP addresses. Although their respective privacy policies appeared to permit them to do so, these two companies refused to provide those records without subpoenas. Alderman also stated that he had reported the copyright infringement to Linden under its Digital Millennium Copyright Act policy, but had been redirected by Linden to it abuse reporting system.¹⁶⁰

On October 24th, Eros filed a first amended complaint and subsequently effected service of process upon Leatherwood. When Leatherwood failed to answer the amended complaint within the permitted time, the clerk entered a default against him on November 16, 2007. In an interesting twist, Eros failed to timely apply for the entry of default judgment in accordance with the court’s local rules, and the Court ordered Eros to show why this case should not be dismissed for lack of prosecution. Eros subsequently filed and was granted a motion to extend the time to respond, and that response is pending, as of March 12, 2008.¹⁶¹

The Allegations Against Leatherwood:

Eros’ first amended complaint provides the following allegations.¹⁶²

Under the terms of use that govern users’ participation on Second Life, users retain al intellectual property rights in the digital content that they own, create, or otherwise place within that virtual platform.

Florida-based Eros is one of the world’s most successful merchants in world where it makes and sells virtual adult-themed objects. Eros’ products are widely known in world through the marketing efforts of Eros’ CEO Alderman, also known as “Stroker Serpentine” in world. Eros also promotes its products in the virtual world by advertising and by conducting promotional events within many virtual adult, social-themed events in world. In addition to the products’ virtual promotion and fame, Mr. Alderman, Eros, and Eros’ products are widely known in the tangible world by virtue of extensive media coverage by Wired, eBay Magazine, ABC Australia, and others.

As a result of their reputation for performance, quality, and value, Eros’ products are among the best-selling adult-themed objects in world. Eros particularly described and provided images of its SexGen Platinum Base Unit, version 4.01, and its SexGen Platinum+Diamond Base, version 5.01 products. Eros filed applications for copyright registrations for both products on June 25, 2007. Both products are sold in world, as also are a number of other Eros products, under its trademark, SexGen.

Eros sells both of the named products on a “NO COPY” basis. Eros explains that this “NO COPY” permits Second Life users purchasing these products to transfer them to other Second Life users, but copying by non-Second Life users is prohibited.

According to United States Patent and Trademark Office records, Eros filed an application to register its SexGen word mark on June 11, 2007, that is, shortly before filing the original complaint in the instant action. The application states that the date of first use in interstate commerce was January 1, 2005 and seeks to register the SexGen mark to the class for a “[s]cripted animation system utilizing a defined menu to actuate avatars within a virtual world access through a 3-dimensional virtual platform.” As of March 2008, that application is pending under serial number 77202601.

According to Eros’ first amended complaint and beginning in at least April 2007, Defendant Leatherwood made and sold numerous unauthorized copies of Eros’ above-named virtual products in world using its trademark, thereby violating the Lanham and Copyright Acts.¹⁶³ Leatherwood maintains one or more Second Life accounts and has sold these products to Second Life users located in Georgia and West Virginia in the United States and in Great Britain. Leatherwood also misrepresented the copies as authorized and legitimate copies of products created by Eros, thereby causing actual consumer confusion as to the origin of those products.

Eros claimed that Leatherwood acts in concert and conspiracy with a number of other unknown individuals residing in the United States and named in the complaint as Defendants John Does 1-10. These unknown conspirators include one or more Second Life users. The John Does allegedly compensate Leatherwood for making and distributed the unauthorized copies of the products or otherwise assist, aid, abet, and contribute to his illegal conduct or otherwise violate the relevant laws by all of the foregoing conduct.

Eros’ amended complaint repeats its general allegations to set forth its three causes of action. It asserts that the complained-of acts are willful, wanton, malicious, and committed in bad faith and then sets forth allegations in keeping with the standards for the grant of a preliminary injunction order and praying for the range of damages and other relief.

For lawyers with a virtual worlds practice, this case illustrates the challenges of properly identifying and discovering the identities and other fundamental facts about defendants and other actors in cyberspace, a. As a practical matter, it also shows that, from a plaintiff’s perspective, DMCA and privacy policies may not produce optimum responses from online businesses with respect to reporting and resolving copyright infringements online or to obtaining member information by which to identify the subject actors.

In addition, it shows the need for constant monitoring of virtual assets and, as Eros did in this instance, a rapid response to misappropriations or other misconduct, particularly given the fleeting and highly chameleon nature of electronic identities.

As with other reports of currency intersections between the real and virtual worlds, Eros v. Leatherwood demonstrates that virtual assets can have significant real value in monetary and intellectual pro