Hotline Miami 2, the forthcoming sequel to the excellent indie game Hotline Miami (note: I wrote that in bold, underline and italics to show how much I mean it), has been denied classification in Australia (another victim of the relatively restrictive local age rating system there). So its developer instead just told Australian fans to pirate the game for free, attracting no small amount of games press in the process (hello, Streisand Effect). So, I thought I’d write a little post on the subject of what happens legally if a developer pirates, or encourages piracy of, its own video game? Continue reading Can you pirate your own video game?
I couldn’t resist blogging quickly about this intriguing story, courtesy of The Guardian: a British MP wrote a formal question to the British government asking them to ensure that in-game theft be treated the same as real world theft. Answer: nope (ish), but it does raise a real question which judges are already addressing… Continue reading Should virtual theft be treated like real world theft? A UK MP says yes.
The Dutch Supreme Court will be invited later this year to conclude that the theft of virtual goods from Runescape constitutes theft under Dutch criminal law; indications to date suggest that it may conclude that theft of virtual currency/goods IS criminal theft. To my knowledge, this is only the second time that a Western court has considered the (increasingly important) issue of the relationship between virtual goods and criminal law, the first time having been a UK criminal court earlier this year over Zynga chips.*
According to Futocop, this Dutch case apparently forms part of a long-running matter which began in 2008 when two boys were sentenced to community service and suspended juvenile detention after they forced a 13-year old to transfer a Runescape virtual mask and a virtual amulet from one avatar to another under the threat of physical violence. The detail is not entirely clear from Futocop, but I think what happened next is that the case was appealed, but the Court of Appeal ruled against the defendants and the case is now going even higher, to the Supreme Court.
One point in particular is worth noting. As part of the referral of the case to the Supreme Court, the Dutch Advocate General (a sort of legal expert whose job is to assist the court to make its decision) said that the economic value of the virtual goods is of particular interest to the question whether there is theft:
“Virtual objects can represent an economic value both inside and outside the game. They are also individually distinguishable and transferable“.
This comment is interesting because, if it was accepted by legal authorities, then basically that on its own could bring virtual goods and currency within the existing law. Put it another way: if both physical goods and virtual goods are recognised as having the same economic value even though one exists in the real world and one does not, then that is a powerful argument for both of them to be protected in the same way legally. In a way this is nothing new really: after all shares, electronic money and electricity are all legally protected even though you can’t physically touch them. But it is taking some time for courts to recognise that virtual goods fall into this category too. Of course, once that recognition is made, it opens up a whole new can of worms for the games and tech industry: who owns virtual goods? What can you do with them? What classes as virtual goods – game items, ebooks apps? And so on (more details on that here).
Anyway, in the meantime this case is due to go to the Supreme Court in October 2011, so expect more details later in the year…
* For those virtual goods scholars who are reading this post, to clarify: I know there have been previous opportunities in the West to consdier the legal status of virtual goods (e.g. Bragg v Linden Labs), but to my knowledge all of them resulted in settlements etc with no judicial pronouncements being made.
Last week a hacker faced a substantial prison sentence after pleading guilty to stealing approxmately $12 million worth of Zynga chips, a virtual currency used in its poker game. This is big stuff (more on that below).
I spoke with Develop about this fascinating development – here’s their article:
“An IT businessman is facing a substantial prison sentence after pleading guilty to stealing around $12 million in online game currency.
Ashley Mitchell, 29, based in the Devonshire costal town of Paignton, admitted to hacking into the accounts of social gaming giant Zynga.
He transferred around 400 billion virtual poker chips into his account and began selling the currency on the black market. He had made £53,000 before his arrest.
Mitchell stood to make around £184,000 from the chips, the court heard, though Zynga’s sale value of the currency is $12 million.
Judge Philip Wassall said Mitchell faced a substantial jail term for the offences, according to regional paper Herald Express.
Mitchell was remanded in custody after the case was adjourned for reports.
The actual value of Zynga’s intangible and instantly replicable online currency sparked a debate in court.
Prosecutor Gareth Evans said Zynga had not been, in essence, deprived of any goods. He claimed there may be a knock-on effect as more customers bought the poker chips on the black-market instead of paying Zynga.
Judge Wassell asked if the case was any different from stealing notes from the Royal Mint – the UK’s body that manufactures British currency.
Prosecutor Evans replied that, in theory, there was no difference because the mint can produce more currency if its goods were stolen.
He said there is, however, a difficulty in valuing the chips because they are digital. But if Zynga had sold them legitimately the value would have been around $12 million.
Jas Purewal, lawyer and author of Gamer/Law, explained to Develop that the case has set a new precedent.
“This shows that the legal regulation and protection of virtual goods and currency, which historically has been fairly uncertain, is evolving fast – driven partly by the boom in virtual goods sales in games.
“This case is particularly interesting because it involved a UK court recognising virtual currency – in this case, Zynga chips – as legal property which can be protected by existing UK criminal laws.
“The court effectively found that, even though virtual currency isn’t real and is infinite in supply, it still can deserve legal protection in the same way as real world currency”.
Purewal said the case is a “vindication” for Zynga and other virtual goods providers.
Judge Wassell heard that Mitchell’s offences were in breach of a previous suspended sentence he was handed in 2008.
Mitchell had previously been convicted of hacking into the Torbay Council website and changing his personal details.
Defence solicitor Ben Derby said as a plea in mitigation that Mitchell had been “wrestling with a gambling addition” at the time of the Zynga theft.”
As I said to the Develop guys, this case really does seem to break new legal ground. For the first time (so far as I’m aware anyway) in the West, a court has looked at virtual currency and seemingly accepted on relatively little argument that it can be classified as ‘property’ within the meaning of (UK) criminal laws (though NB I can’t state definitively the the court found virtual goods = property, because we don’t have the court transcript).
So what? Well, as longtime readers will know, I’ve been exploring for some time the legal status of virtual goods, which I think is going to come under significant pressure from different directions in the next few years. The key issue is whether virtual goods are ‘goods’ (i.e. property) or whether they are services or something else. If they are property, then in principle they could be bought/sold/assigned etc – which goes way beyond the way in which virtual goods are currently dealt with.
Until now, there has been relatively little by way of official analysis of this issue – which is why this case, where a judge seemed willing to convict a man based effectively upon theft of a virtual currency – is significant.
We may not hear much more about this particular development (except possibly when the man is actually sentenced) but this is definitely not the last we’ve heard about the interaction between games, virtual goods and the criminal law (in fact, I might even write a piece on that next month!) As always, watch this space…
Take-Two, the US-based games publisher, can proceed with a lawsuit against some of its former key executives regarding alleged illegally backdated stock options, following a Manhattan federal judgment yesterday.
Reuters reports that former Chief Executives Ryan Brant and Kelly Sumner and former Chief Financial Officers Larry Muller and James David will now have to defend claims alleging securities fraud based on option grants awarded after July 12, 2001.
Back in 2006, Take-Two announced that the US Securities and Exchange Commission was going to investigate certain of its stock option grants since 1997. In a nutshell, a stock option grant is an offer to a person (typically to a company executive or senior employee) to buy company shares at a specified price. The investigation formed part of a wider enquiry in the US as well as the UK regarding the legality of backdated stock options at hundreds of companies. This led to the discovery of fraud and illegal back-dating of stock options by (now former) Take-Two executives.
Backdated stock-options for dummies:
To explain: it is possible to take a stock option and back-date it, generally to a time when the company shares were worth less, thus instantly making the stock option more valuable if the company’s shares have performed well at the point at which the option is exercised.
Basic example: a stock option is granted to an executive in 2007 when the shares are worth $10 but is backdated to 2003 when the shares were worth $2. If the shares are worth say $20 now in 2010, the executive will make a lot more money by having the option back-dated to 2007 (then the profit is $20-$2 = $18 per share), compared to the profit to be made if the true 2007 price was used (then profit would be $10 – $2 = $8 per share).
The perceived dangers with backdated stock-options are that they can artificially inflate company earnings and share price, as well as being seen poorly by shareholders and potentially the market. That said, backdating share options is generally not illegal per se, provided the legal formalities (in particular, disclosure to the regulator and approval by the company) are complied with.
What happened next:
The SEC discovered that Take-Two had not complied with the proper formalities, had filed false information to the SEC, and that the former executives – in particular the former CEO Rob Brant – had acted fraudulently in concealing the backdating of the stock options.
In 2007, Rob Brant pleaded guilty to a SEC criminal prosecution regarding the backdating and agreed to settle a civil lawsuit over the same issues. Other former Take-Two executives also pleaded guilty in parallel criminal prosecutions.
In April 2009 (according to Reuters) Take-Two paid $3m to the SEC to settle its part in the backdated stock options scandal.
The current lawsuit:
It now transpires that Take-Two shareholders have pressed ahead with separate civil claims for compensation against the former executives, and further that Take-Two has now taken over these claims itself. So, instead of the Take-Two shareholders claiming compensation from the former executives, the company itself is now pressing the claim.
Although the Reuters article doesn’t state so specifically, the fact that the judge ruled that some of the claims can proceed whereas others cannot suggests that the former executives may have gone to court to have some of the claims against them thrown out for being out of time (all legal claims have a ‘limitation period’ of time during which they must be commenced or otherwise will be forfeited, e.g. breach of contract claims generally have a six year limitation period). In the event, the judge did rule that some of the claims could proceed whereas others were indeed out of time.
Reuters was not able to obtain a comment from Take-Two but no doubt one will be forthcoming sometime soon. Hopefully, at that point Take-Two will be able to clarify exactly what claims it is bringing against the former executives and what is the value of these claims.
Going forward, it will now fall to Take-Two to press ahead with its legal claims against the former executives, so we’ll be sure to hear more about this in the future. We’ll write a follow-up post once further information (and hopefully the Court documents) become available.
[Image credit: Take Two Interactive]
I just read a paper by Leslie Garfield, a Professor of Law at Pace University in the USA, about whether intentional infliction of emotional distress over the internet (e.g. cyber-bullying) should be criminalised. This has got me thinking – should griefing be criminalised too?
Details here. A group of Runescape players mount a phishing scam, obtain other players’ accounts, strip those accounts of gold and loot. Presumably they make an in-game or real-world profit. Then the UK Police (specifically the Central Police e-crimes unit) swoop in. They arrest a caution an individual in Avon and Somerset “on suspicion of a number of computer misuse offences”.
Police pwn players
This appears to have been the first time that a UK games company has gone to the police to protect the integrity of its game. Not much at all has been said about exactly what offences have been alleged.
UPDATE: I had initially thought that one way in which the Police could go after the accused would be to prosecute for theft. However, on a closer look (and thanks to the guys in the comment thread), it seems that a better way may be under the Computer Misuse Act 1990 – with which I must admit I was previously unfamiliar. Thanks!
What is the Computer Misuse Act 1990? (CMA)
In the late 1980s there was controversy in the UK regarding the legality of hacking, following a UK case called R v Gold and Schifreen – in a nutshell, two guys were able to hack a British Telecom system but, as the law stood at the time, hacking was not expressly illegal and therefore they were acquitted. This was a factor in the Parliament of the day passing the CMA.
As a very quick summary, the CMA was intended to criminalise three kinds of conduct:
(i) Intentional attempts to cause a computer to perform any function with intent to obtain unauthorised secure access to a computer or data on it (the section 1 offence)
(ii) Same as (i) but with the intent to carry out a further criminal offence (e.g. hacking a PC in order to commit fraud) (the second 2 offence), and
(iii) acting in any way which causes the unauthorised modification of the contents of any computer, with the intent to impair the operation of any computer/programme or to hinder access to data on any computer (the section 3 offence).
Carrying out any of the above renders you liable to a fine and/or imprisonment (between six months and five years depending on how you plead to the offence).
Is the phisher/account-ninja covered?
‘Yes, but the wording isn’t brilliant’, seems to be the general answer. Certainly phishing could be said to fall under the section 1 offence under the argument that the phisher sets programmes running which find out the account details etc of the innocent person(s). To the extent that the phisher had intent to use those details to commit further criminal offences then he/she could also fall under section 2 – which carries harsher penalties. Then there is the somewhat more nebulous section 3: does phishing or ninjaing someone’s account “impair” or “hinder” any other computer or program? Maybe – perhaps if having your account details “hinders” your ability to use the programme?
But this gets even more interesting
Anyway, what we want to do is focus on section 2. If the phisher stole Runescape account details with a view to somehow trying to gain access of others’ computers or stealing their bank details, then there would in principle be a case for arguing that they had had intent to commit further criminal offences under section 2. But what if the phishers only intended to enrich themselves in-game by, for example, turning the stolen accounts’ assets into gold and transferring that gold to themselves or even selling it on the black market (which would be a breach of the EULA etc but not necessarily illegal as such). Could enriching yourself in-game or in the real-world through a game by unauthorised means be classified as an offence?
That is the really interesting part to this case and, if the Police are interested in pushing for the strongest sentence possible against these phishers, they will need to consider this sometime soon – if they haven’t already.
That’s exciting, isn’t it? Makes us think about adding a chapter to that book on virtual law which we’ll have to write one day…
In the meantime, the story goes on…
Little more has been announced since the Police announcement earlier this week, but no doubt further details will follow in due course. It’s also worth bearing in mind that Jagex has stated that this is part of a long-term investigation in both the USA and UK – so there may be further twists in the tale yet…
The legal action brought by aggrieved shareholders in Midway Games against Midway directors over the collapse of the company has concluded with a victory for the Midway directors. This case shows once again the dangerous fallout that can emerge from the collapse of any business. Read on…
The background is that certain shareholders in Midway Games (developer of Mortal Kombat) commenced US legal proceedings claiming that certain of Midway Games directors concealed the truth about the financial condition of the company (source: Gamesindustry.biz). These shareholders, who lost millions when Midway Games entered insolvency proceedings in February 2009 and was subsequently sold for a fraction of its previous value, argued that the directors had deliberately kept the shareholders and the public in the dark regarding Midway’s financial condition in order to profit from their sale of their own Midway shares. The directors in question were former CEO David Zucker, Thomas Powell (chief financial officer), Steven Allison (chief marketing officer), James Boyle (controller) and Miguel Iribarren (senior vice president, publishing).
However, a US District Court has now ruled in favour from the Midway directors, finding that they had not “said or did anything more than publicly adopt a hopeful posture that [Midway’s] strategic plans would pay off…” and, in any event, “such preening for the financial press is classic puffery”.
This case exemplifies the rule of thumb that when any business fails, both the creditors and the shareholders will look for someone to blame in order to try to recoup as much of their losses as possible. A strategy frequently adopted is to go after those persons or entities with the deepest pockets and/or who had a say in the management of the company – quite frequently, the directors of a company will meet both of these criteria.
It helps that directors generally are held to a high standard of conduct regarding their management of a company, especially where that company is in financial difficulty. Under English law (and most common law jurisdictions that we can think of), directors have a strict duty to act in the best interests of the company and not to act for their own private profit. For example, this has previously been held to mean that directors cannot take up commercial opportunities that the company has rejected (unless of course the company gives a clear ok to the director). The directors also have a duty to monitor the financial performance of a company and, if it is apparent that the company is or may become insolvent in the near future (i.e. it is no longer able to meet its debts as they fall due and/or its liabilities are greater than its assets) then the directors should think very seriously about stopping trading altogether. It is a criminal offence for directors to permit the company to keep trading when there is no realistic prospect of the company recovering on its own, or to continue trading where they know that the company cannot recover. If the directors breach any of those duties, then in principle they could face both civil and criminal legal action against them personally, including demands to pay monies back to the company.
Of course, all that just deals with the relationship between the director and his/her company. What about shareholders? This is a more difficult question, because as a very general rule shareholders’ direct relationship is with the company in which they own shares, not its directors. However, there may be some ways around this. For a start, it may be possible (depending on the laws of the jurisdiction in question) for the shareholders to step into the shoes of the company for the purpose of asserting a claim against the directors (called a ‘derivative claim’). Or it may be possible for the shareholders to fund the company to make a claim itself against the directors. Or the shareholders may able to argue some direct relationship between them and the directors which entitles them to assert a direct action against the directors.
Whatever the precise legal form of the shareholders’ claim, any such claim would face the usual problems with litigation: it is costly, risky and time-consuming and – far more often than not – there is no guarantee of success however strong one’s case may seem at the outset. In some jurisdictions, difficult claims may be easier to bring than others – in England and Wales for example the loser generally has to pay the winner’s legal costs, which can be a significant disincentive to bring a speculative claim. Other jurisdictions can be more ‘claimant-friendly’.
Anyway, a few practical points to sum up:
(i) when a business goes under, people who lose out can be very inventive in deciding who to go after.
(ii) directors are particular targets and should consider taking legal advice about their duties and responsibilities as soon as it becomes possible that the company may be entering a difficult financial condition or even insolvency. This advice need not be expensive, but it may help them to avoid personal liability if things get really bad…
[Image source: Wikipedia – http://en.wikipedia.org/wiki/File:MKDL.PNG]
A couple of more interesting Eve-related stories (as recently reported, Eve is an interesting place for games lawyers).
Yet more theft in Eve
First up, Massively reports that CCP Games have announced, breaches of the rules governing their Volunteer Program. The Volunteer Program consists of gamers who give of their time to help out CCP and fellow Eve gamers. Quote from Massively:
“The Volunteer Manager for EVE Online, CCP Ginger, explained the situation earlier today: ‘Last weekend external resources related to the Interstellar Services Department (ISD), EVE’s volunteer program, were compromised which led to the theft of some volunteer program related data but also information about specific volunteers. As a result, we are being extra careful here, as this first and foremost pertains to the volunteer program and has no effect on our EVE Online operations or any customer data whatsoever’ “.
CCP appears to be tight-lipped as to exactly what was stolen, although they stressed that personal and account information remains safe. Watch this space…
More generally, and as we’ve discussed previously on this blog, Eve is a brilliant example of gaming imitating life, in this case by the theft of information – which, in the real world, may have been private and/or confidential and accordingly would be protected (at least in England and Wales) by the common law as well as statute (for example, potentially under the Data Protection Act 1998). Unfortunately, Eve has no such systems of legal protection…yet.
Eve may implement a taxation system
Another one courtesy of Massively. CCP has said it is considering implementing a partial taxation system within Eve. Specifically, players who are members of NPC corporations (i.e. corporations provided by CCP, rather than player-created corporations; for corporation essentially read ‘alliance’) will be taxed on certain income.
Now, this is really very interesting indeed. CCP’s objective appears to be to use taxation to nudge players from out of the safety of NPC corporations (which are relatively matronly, comforting institutions) into the wild chaos that it is player-corporation Eve. To an extent, tax isn’t anything new to Eve because player-corporations already operate very rudimentary tax systems – the revenues from which are then used to fund the corporations’ activities. But what is new is that now CCP itself is wading into the action and on a far larger scale. This raises all kinds of potential issues – here are some of our thoughts:
(i) How is the principle going to be turned into practice? Modern tax systems in the real world are immensely complicated, featuring roles on taxable and non-taxable income/capital gains, exemptions and reliefs. More or less, this complexity is needed because taxation is a complicated activity – it is not fair to just slap an arbitrary tax upon everyone with no exceptions. If CCP implement this seriously, then at some point they are going to need a tax code.
(ii) What is going to happen to all that revenue? The NPC Corporations which will gather them don’t need it, because they are emanations of the Eve God. They could literally just delete the money as soon as it is received and not suffer for it.
(iii) What will the economic cost of imposing a general taxation system be? No doubt Eve’s resident economist will step to the fore on that one.
More interestingly from our perspective, this is a great example of the slow creep of MMOs towards creating quasi-legal systems to govern the relationships of gamers between each other and with the Devs. In this case, CCP is not creating a taxation system because they need to raise the money in game, but because they think it will improve the game experience. That sets a very interesting precedent. It may sound far-fetched now, but that same justification could be used to set up property laws, health and safety laws, even criminal laws in a game in the future…
A high-profile case of insider trading was uncovered yesterday in the MMO Eve Online (thanks to Massively for writing about this first).
Some background: two of Eve’s most impressive features are that, firstly, by and large it has an (almost) completely unregulated economy which is effectively run by and for players in a kind of huge free trade free for all (I’m quite proud of just inventing that phrase); and, secondly, that the devs behind Eve, CCP Games, actively seek their players’ opinions through consultations with a player-elected “Council of Stellar Management” (CSM).
As part of that consultation process, CCP provides CSM members with highly sensitive information which, if made public, would very likely have a material impact on the Eve economy. Basically, they are provided with what in the real world is known legally as ‘price sensitive information’ (PSI): for example, you find out secretly from your mate who works at the world’s biggest producer of sheep dip that the price of sheep dip is going to treble tomorrow, so you try to corner the market by buying all the sheep dip now with a view to making a financial killing tomorrow. To guard against this kind of thing, CSM members have to provide their personal details to CCP and sign a Non-Disclosure Agreement – just as they would in the real world.
You can see where this is going, already. Yes, one of the CSM Council members found out some (still unknown but presumably juicy) information about CCP’s future plans for Eve and could not resist taking advantage. It appears that he carried out trades worth 2.5 billion Interstellar Kredits (the currency of Eve) in certain Eve products, with a view presumably to selling them at a massive profit when whatever these big proposed changes in Eve took place. Except that CCP got wise to his game pretty quickly and, within a week of making those trades, they blocked all of his accounts – tantamount to a death sentence in Eve, since it means that player is unable to play the game anymore.
Now, the value of this naughtyness is not massive: 2.5bn ISK is, in Eve terms, a substantial but not massive sum which, based on Eve’s official Real Money Trading scheme, could be purchased for about [US$400 or rather less on the black market – TBC] in the real world. There has been more financially damaging crime in Eve’s past – for example, the famous Guiding Hand Social Club heist in 2005. The really interesting thing here is not so much the financial harm caused but rather that this kind of misconduct is possible in a game and will certainly be committed again in the future (in fact, Eve is no stranger to scandals: [insert a couple of links here].
Taking a step back, if this kind of misconduct was carried out by a director in a real world company, he/she would face a whole world of legal woe, including potential claims of breach of directors’ duties and market abuse as well as criminal prosecution for insider trading. In other words, enough to put you out of your job and your house and into jail. This is because insider trading is perceived as being one of the most damaging forms of economic crimes, because it reduces trust in the financial institutions and companies which form the backbone of the economy (no credit crunch jokes please, this is serious stuff). Obviously though, CCP isn’t realistically going to try to pursue real world claims (although one day we will get around to writing an article about what might happen if they tried).
More generally, all this raises very interesting questions about the extent to which Eve, or any MMO for that matter, can and should have a more sophisticated (we would say quasi-legal) regime that first of all says that this kind of conduct is a bad thing, secondly has some sort of mechanism for impartially testing any allegations of misconduct, and thirdly sets out the proper punishment to be meted out for the misconduct. Regarding that last point, at present, CCP’s main recourse is to ban the player from playing the game, which is of course the ultimate deterrent in the same way that capital punishment is the ultimat deterrant to criminals in the real world – but isn’t that a bit of a blunt instrument? Perhaps CCP should be thinking of a range of punishments as part of their new regime, from account-bans to public censure and financial compensation to (perhaps) lesser punishments for lesser offences. Perhaps one day someone will take this up and we may see the world’s first MMO ASBO…?