Addressing legal issues with the latest technological developments and social media trends.
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The FTC recently posted a press release (FTC Press Release) on their settlement with Twitter, Inc. over charges that the company failed to protect users’ private information. The charges against Twitter stem from several high-profile incidences where hackers were able to gain administrative control of Twitter to: view nonpublic user information; gain access to direct messages and protected tweets; reset any user’s password; and send authorized tweets from any user account.

The FTC made it a point to remind companies that a promise to keep user personal information secure must be kept. Furthermore, even when social networking users choose to share information with others, they still have a right to expect that their personal information will be kept private and secure. The press release outlines the reasonable steps Twitter failed to take and serves as a useful guideline for companies that want to make sure their user information security practices do not run afoul of FTC expectations.

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Google has prevailed on summary judgment in a lawsuit brought against it by Viacom for widespread copyright infringement due to uploading of copyrighted content to its YouTube site. Viacom was seeking $1billion in damages, alleging that Google was aware that users were committing copyright infringement by uploading songs and other content to YouTube and that Google was permitting this to happen. The Judge sided with Google finding that it was protected under the “safe harbor” provisions of the Digital Millennium Copyright Act (DMCA). Viacom has vowed to appeal.

The safe harbor provisions of the DMCA provide a significant shield from liability for online service providers, such as Google, when users post infringing content to their site However, to qualify for this safe harbor, the online service provider must have an effective policy and must comply with any proper DMCA take down notice. Other requirements must also be met.

Many companies are generally aware of the DMCA but some do not comply with all of the steps necessary to benefit from the safe harbor due to a lack of complete understanding of these requirements. If you are an online service provider and allow users to post content to your site, you should consult with an attorney knowledgeable of the DMCA to ensure you qualify for the safe harbor provisions. A copy of the decision is here: Google Decision

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On June 15, 2010, Amazon was awarded U.S. Patent No. 7,739,139 entitled “Social Networking System.” Some have said this relates to fundamental aspects of “friending” and data sharing in social networks. If the patent is truly as broad as some say, what impact might this have on Facebook and other social networking sites?

Here is a copy of claim 1 to read for yourself:

1. A computer-implemented method, comprising:
receiving and storing personal data of a first user of a computer-based service, said computer-based service accessible to users over a network, said personal data specified by the first user;
providing a user interface for users to establish contact relationships with other users of the service such that each user can have one or more contacts, said user interface enabling a user to identify other users of the service, and to selectively initiate the generation of requests to establish contact relationships with the identified users;
receiving a request from a second user of the service to establish a contact relationship with the first user, said request submitted to the service over a network via said user interface;
sending a notification of the request to the first user over a network;
providing an option, in connection with said request, for the first user to grant permission for the second user to view at least some of the personal data of the first user; and
in response to the first user granting said permission, providing the second user access to at least some of the personal data of the first user via a contact information user interface of the service, such that the second user is provided access to data that would not otherwise be accessible to the second user via the service;
wherein the method, including receiving and storing the personal data, providing the user interface, receiving the request, sending the notification, providing said option, and providing the second user access, is performed by a server computer system.

As such, the ‘139 Patent appears to be related to invitations between users that establish a contact relationship in which an invitation also includes an option that is selectable by a receiving user to provide enhanced access to personal information of the receiving user for a requesting user.

An obvious question that people ask whenever an apparently broad patent is issued is whether the patent is valid. The Amazon patent is part of a chain of applications and patents dating back to 1997. These patents include U.S. Patent No. 7,386,464 (“the ‘464 Patent”) entitled “Network-Based Crossing Paths Notification Service”, U.S. Patent No. 7,194,419 (“the ‘419 Patent”) entitled “Network-Based Personal Contact Manager And Associated Methods”, U.S. Patent No. 6,714,916 (“the ‘916 Patent”) entitled “Crossing Paths Notification Service”, and U.S. Patent No. 6,269,369 entitled “Networked Personal Contact Manager”. The chain also includes two pending U.S. patent applications that have not yet been examined substantively by the U.S. Patent and Trademark Office. These applications have been published as U.S. Patent Application Publication No. 2009/0282120 (“the ‘120 Publication”) entitled “Social Networking System”, and U.S. Patent Application Publication No. 2009/0282121 (“the ‘120 Publication”) entitled “Social Networking System”. The patents and applications in this chain generally describe many features of social interactive media that are now common. Some of these features include:automatically proposing meetings for contacts based on travel plans and/or home locations; presenting users with other users they may be interested in forming contact relationships (based, e.g., on contacts in common, affiliation with common organizations, and/or other parameters); and controlling the types of personal information to which individual contacts have access.

Many argue that “software patents” describing systems and methods such as the ones described in the Amazon family of patents are not practical because this technology moves too quickly. This family of Amazon patents demonstrates how timely filing of patent applications early on in the development of a technology can continue to bare fruit that is relevant to ongoing technological developments for over a decade after the original filing.

As yet, Amazon has not brought any law suits based on this family of patents. Pillsbury’s Virtual Worlds and Video Game team has previously prepared an article that discusses some of the reasons a portfolio like this one can be valuable to a company even if they are not used to bring law suits for patent infringement, a copy of which can be found here.

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In a recently filed complaint (Actus Complaint.pdf), a patent holding company has sued over a dozen major companies for alleged patent infringement. The suit alleges infringement of 4 patents that relate to virtual currency or “electronic tokens”. The patents include United States Patent No. 7,328,189; 7,249,099; 7,177,838; and 7,177,838.

The defendants in the case include Discover Financial Svcs.; Electronic Arts, Inc.; Home Depot, Inc.; Lowe’s Companies, Inc.; McDonald’s Corp.; Moneygram Int’l, Inc.; News Corp.; Recreational Equipment, Inc.; Sears Holding Corp.; Simon Property Group; Starbucks Corp.; Target Corp.; The Sports Authority, Inc.; The TJX Companies, Inc.; The Gap, Inc.; Yum! Brands, Inc.; Zynga Game Network, Inc.; ACE Cash Express, Inc.; Brinker Int’l, Inc.; and Darden Restaurants, Inc.

Given the rapidly increasing use of virtual currency and alternative forms of micropayments, it is not surprising to see more patent litigation. But patent infringement is but one legal concern when using virtual currency. A whole host of legal issues impact virtual currency. Pillsbury’s Virtual Worlds and Video Game team has prepared an advisory on legal issues with virtual currency. Virtual Currency.pdf

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Social gaming powerhouse Zynga has joined forces with 7-Eleven to begin selling items branded with its popular gaming titles in 7-Eleven stores throughout the US and Canada. The six week promotion will include more than 30 products, including Slurpees and Big Gulp drinks, all with redemption codes that will allow users to purchase virtual goods, including limited edition and uber gifts, in FarmVille, Mafia Wars or YoVille. The virtual goods range from a virtual coffee cart in FarmVille redeemed from the purchase of an iced coffee, to a bullet proof vest redeemed from the purchase of pizza, chicken wings, Big Bite products, chicken tenders or breakfast quesadillas. 7-Eleven expects to promote the new campaign, which begins June 1, through several different media outlets, including radio, print, online and on MTV.
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This Federal Trade Commission has launched a campaign to educate tweens (kids ages 8 to 12) about advertising so they can become more discerning consumers of information. Called Admongo, the goal of the campaign is to boost advertising literacy by:

  • Raising awareness of advertising and marketing messages
  • Teaching critical thinking skills that will allow tweens to better analyze and interpret advertisements
  • Demonstrating the benefits of being an informed consumer

Here is a link to the game trailer

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Join Pillsbury for an evening with social game entrepreneurs, venture capitalists and legal analysts. This event will cover a number of recent trends and changes in social gaming business models. We will also discuss the current venture climate, what VCs are looking for in a social gaming company and ways to position emerging companies for investment. Finally, we will discuss the key legal issues associated with this emerging industry and review the key intellectual property due diligence factors that are critical to current and future financing.

June 1, 2010
Agenda
6:00 – 6:50 pm Registration & Networking (Appetizers will be served)
6:50 – 7:00 pm Welcome and Introductions
7:00 – 8:30 pm Panel Discussion and Q&A
8:30 – 9:00 pm Networking
Speakers include:
James Gatto, Partner, Pillsbury Keith McCurdy, Digital Media Executive, Entrepreneur and Board Member Jeremy Liew, Managing Director, Lightspeed Venture Partners Phil Sanderson, Managing Director, IDG Ventures SF

Pillsbury’s Silicon Valley office 2475 Hanover Street Palo Alto, CA 94304

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Nickelodeon has announced a virtual good platform for its Addicting Games site. According to Dave Williams, a Senior VP and GM, he sees virtual goods as a huge opportunity and by developing its own virtual goods platform, Nickelodeon minimizes the burden on developers to create their own platforms. This launch is another example of the perceived potential of virtual goods to monetize online games.

Additional details on the launch were reported by GamesBeat

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As further evidence that Virtual worlds technology is useful to all types of entities, including the Federal Government, the USDA recently announced an award of a virtual world contract to four companies: Advanced Software Systems, INC; Avaya Government Solutions INC; Science Application International; and Three Wire Systems LLC.

The solicitation states that the purpose of the contract is to: “obtain a broad range of high-quality virtual world software products …. to foster enhanced participation from commercial and non-government entities to assist the agency in the development of virtual world solutions.” Sounds like this is just the beginning of what could be a multistage evolution and helps explain the four winners.

On a personal note, we would like to congratulate all the winners, but in particular, Three Wire which is a Pillsbury client. This contract award is another bit of good news for Three Wire which also recently won the U.S. Army Simulation & Training Technology Center’s Federal Virtual Worlds Challenge for best collaboration in a virtual world by a government contractor. The award was presented at the Defense GameTech Users’ Conference in Orlando in March for Three Wire’s VetAdvisor Virtual Room (VVR).

The overview of the project is pretty interesting. It states:

One or more software platform(s) is required that enables the Government to build, customize and host one or more interactive persistent virtual world(s) (VW) where users can operate over networks for the purposes of collaboration, training, rehearsal, analysis, simulation, experimentation, and socialization.

The required features are desired to be similar or better to what is available in public virtual world environments like Second Life, There.com, or World of Warcraft. The Government requires that it be able to build and host a highly reliable and available private world that unlike the public environments is able to operate using firewalled or classified networks and is capable of integrating with legacy and emerging technologies. In addition, the Government must completely control the hosting environment, software licenses, support contracts service levels, content, experiences, and user access.

The Government envisions a fully immersive, persistent 3D experience using avatars as the user interface rather than more traditional 2D web based experiences. The VW infrastructure, core components, and tools must provide a complete platform to support collaboration.

The Government envisions a solution that is extensible where specialized functionality shall be provided through the use of plug-ins developed by other Government programs and/or commercial entities that interface to the VW through open Application Programmer’s Interfaces (API) and non-proprietary data formats that provide access to the internal VW data model.

An open architecture solution is required to provide the level of interoperability and extensibility that will be necessary for the wide variety of use cases anticipated.

Three Wire’s Award Winning Project

Three Wire’s award winning VVR project was done in conjunction with the Department of Veterans Affairs and offers telehealth and virtual health delivery platforms for veteran mental health care. Providing a secure meeting place for veterans and Care Coaches (licensed behavior health professionals) to interact, the VetAdvisor Virtual Room features avatars representing both the veterans and Care Coaches. The avatars and the room can be personalized to the veteran’s hobbies and interests while providing real-time interaction. Virtual white boards and multi-purpose screens are used for presentations or accessing documents and websites. In comparison to relying solely on telephonic communication, the veteran is afforded a more personalized, visual and auditory experience.

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Linden Research Inc. and its CE Philip Rosedale have been named as defendants in a class action lawsuit relating to the ownership status of virtual property in Second Life, the popular virtual world in which users can realize significant gains from buying and selling virtual real estate (land and buildings), virtual clothing, and other virtual goods. In Second Life, transactions are implemented using virtual currency provided by Linden called Linden Dollars. These dollars can be earned and bought and sold, including via the LindeX, the official Second Life Linden Dollar exchange.

A significant issue in this case is the status of ownership of virtual goods and virtual currency and the conditions, if any, upon which a user may be denied access to them for violations of the terms of service agreement.

The class members allege that Linden and Rosedale duped users into spending vast sums of money to acquire virtual real estate and other goods, by representing that they would own all rights in the virtual items that they acquired, alleging that users could make real money and that the virtual items would have real value. The complaint alleges that Linden has modified its statements over time and at some point terminated the class members accounts, taking virtual items and currency (both virtual and real) in their accounts without compensation to the members and denying them access thereto.

The complaint goes beyond just alleging property rights violations. It alleges the members were falsely induced into investing in virtual items by defendants. And it alleges that these actions were part of a “continuing and systematic plan and scheme using the national wires and mail intended to, and in fact causing to, defraud Plaintiffs… out of thousands of dollars…”

Of course, one significant issue here will be the Terms of Service (TOS) to which the complaint acknowledges users must click “I Agree” to use Second Life. The Complaint recognizes the TOS, which Defendants will likely fall back on, but alleges that it is “nothing more than a contract of adhesion” that is not read by consumers and that Linden can change the terms at will, even after a user has invested thousands of dollars.

A recent version of the Second Life TOS includes the following non-exhaustive list of provisions, at least some of which may come into play here:

You agree that Linden Lab has and may exercise the right in its sole discretion to pre-screen, refuse, or delete any Content or services from the Service or disable any user’s access to the Service without notice or liability to you or any other party, including upon our belief that such user’s conduct, Content, services, or use of the Service is potentially illegal, threatening, or otherwise harmful to any user or other person or in violation of our Terms of Service, Community Standards, or other policies.

The Service includes a component of virtual tokens (“Linden dollars” or “L$”), each of which constitutes a limited license permission to use features of our Service as set forth below.

When you acquire a Linden dollar, Linden Lab hereby grants you a limited license (“Linden Dollar License”) to use the Linden dollar as a virtual token to be held, bartered, traded and/or transferred in Second Life with other users (and/or Linden Lab), in exchange for permission to access and use Content, applications, services, and various user-created features, in accordance with these Terms of Service. The Linden Dollar License is transferable by the holder to any other user, provided that both users comply with these Terms of Service, maintain their Accounts in good standing, and are not delinquent on any Account payment requirements.

Linden Lab may revoke the Linden Dollar License at any time without notice, refund or compensation in the event that: (i) the Linden dollar program is suspended or discontinued; (ii) Linden Lab determines that fraud or other illegal conduct is associated with the holder’s Account; (iii) Linden Lab imposes an expiration date on usage of Linden dollars in compliance with applicable laws and regulations; (iv) the holder’s Account is terminated for violation of these Terms of Service; or (v) the holder becomes delinquent on any of that user’s Account payment requirements, ceases to maintain an active Account or terminates this Agreement.

You acknowledge that Linden dollars are not real currency or any type of financial instrument and are not redeemable for any sum of money from Linden Lab at any time. You agree that Linden Lab has the right to manage, regulate, control, and/or modify the license rights underlying such Linden dollars as it sees fit and that Linden Lab will have no liability to you based on its exercise of this right. Linden Lab makes no guarantee as to the nature, quality or value of the features of the Service that will be accessible through the use of Linden dollars, or the availability or supply of Linden dollars.

The complaint makes numerous references to a prior suit by Marc Bragg against Linden, over termination of his account for allegedly using an exploit to acquire land more cheaply in violation of the TOS.

If this case does not settle, it could provide some legal guidance on numerous issues relating to the scope and enforceability of Terms and Service and ownership of virtual goods and property.

A copy of the complaint can be found here Evans v Linden Research.pdf