LG vs Sony: court battle over PS3 seizures due tomorrow

UPDATE: Sony was able to lift apparently all restrictions against it and LG was ordered to pay it substantial damages.  More here.

Sony and LG are set to go to court in Holland tomorrow over a court order apparently obtained last week by LG for the seizure of reportedly tens of thousands of PlayStation 3s.  This appears to be a separate strand to the patents battle ongoing between Sony and LG over the PlayStation 3 among other devices.

Florian Mueller over at Foss Patents has all the details.  Here’s my view of the highlights:

  • It seems that, at around the same time that LG secured a temporary ban on the importation of PS3s into Holland, it also obtained a seizure order over PS3s stores in a Sony warehouse in Holland.  As I said, media reports suggest tens of thousands of PS3s may have been seized.
  • Sony was not given advance notice of the seizure (apparently because the judge ruled Sony the opportunity to move its PlayStations out of that warehouse ahead of confiscation).  However, Sony was given permission to appeal against the seizure – which is now set for a court hearing in The Hague tomorrow (10th March).
  • Sony will of course be wanting to have that seizure order overturned, whereas LG will want to extend it – much like the position regarding the temporary importation ban (no news on that, by the way).
  • The court documents filed in support of this seizure order set out interesting details about LG’s explanation why this litigation started up in the first place. 
  • Basically, it seems that LG and Sony were in discussions late last year about giving each other licences over technology underlying a whole range of products.  LG wanted to give Sony only a licence over Bluray technology (and leave the other products for another licence(s), but Sony wanted a licence to cover everything. 
  • LG says that, when these discussions failed, Sony then launched legal action in the US and LG responded with its own legal action in Europe and the US.

So, what’s the current state of play?

(1) Sony and LG will go to court tomorrow over the seizure order – watch this space for more.  In the meantime, bear in mind that the seizure order does not mean conclusively that LG was right and Sony was wrong.  It simply means that the judge felt that LG’s case is sufficiently convincing to warrant the seizure ahead of a full court hearing – but the judge won’t have been able to come to a full decision yet.
(2) The temporary ban on importing the PS3 into Holland is still in place but I suspect is soon to run out – which will mean another court hearing soon.
(3) What impact will the seizure of the PS3s have on PS3 stocks in Europe?  Will it change analysts’ assessments that stocks won’t run low anytime soon?
(4) If in due course a judge finds that LG was wrong to have obtained the importation ban or the PS3 seizures, it would in principle be liable to pay potentially substantial compensation to Sony.
(4) We’ve yet to hear Sony’s side of the story…

Again, go to Foss Patents for all the details.  I’ll write another update when I hear more.


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Analysis: the LG vs Sony PS3 lawsuit

The big news in the console world last week was LG obtaining a temporary ban on the importation of PlayStation 3s into Europe. I spoke with BBC Radio 4 about this issue (you can listen here at 42 mins if you’re keen!) and wrote a feature on Gamesindustry.biz, now reproduced below:


SUMMARY

This case is a ‘first’ for the games industry in several respects: the first time a patent has been used to obtain a console importation ban; the first time a console has been blocked from entering Europe; and the first time a (modern) outside electronics manufacturer has sued over a console. I’m going to discuss why this lawsuit came about, what practical consequences this might have for Sony (though talk of a ‘loophole’ is misguided – more on that later) and what might happen next. Lastly, at the end I set out some key points from this case for all businesses in the games industry.

THE STORY SO FAR

The rivalry between Sony and LG – both of whom are of course Asian giants in electronic consumer products – has been going on for some time. But it really came to the fore when, in December 2010, Sony took legal action to block the importation of LG mobile phones in the US. LG has since responded with legal action in both the US and Europe, alleging that Sony has infringed a number of LG patents over Blu-ray DVD technology, including the Blu-ray tech in the PS3 – which is what has led directly to this battle.


WHAT’S A PATENT?

A patent is a form of intellectual property right – it is essentially a temporary monopoly over the exploitation of a new invention. The legal rationale is that if you have created something useful for society, you are rewarded by the exclusive right to profit from that invention for a limited period of time – provided that afterwards anyone can use that invention freely.

Broadly speaking, in Europe patents are awarded over hardware/physical inventions, not over software. They are therefore mainly of interest to hardware manufacturers, such as console or peripherals manufacturers in the games industry.

Technology companies like Sony and LG tend to amass large portfolios of patents for two key reasons: (1) patents are valuable in their own right; and (2) they can be a useful shield in any patent case brought against you.

That last point needs a little explanation. Let’s say Company A and Company B are both in the electronics industry and both own several patents. Company A sues Company B for patent infringement. Because Company B also owns a patent portfolio, it may be able to use that portfolio to bring its own patent infringement claim against Company A. Hence why owning a patent portfolio can be a shield in patent cases – in fact, having your own portfolio might even stop your rival from suing you in the first place, for fear of an immediate counterclaim.

However, this logic doesn’t work all the time – clearly in this case there has been enough at stake for Sony and LG to go to litigation despite the inevitable counterclaims on either side.

THE PLAYSTATION 3 BAN

As I said, once Sony had started the ball rolling, LG commenced legal action in the US and Europe over Blu-ray tech in Sony products – in particular the PS3. So far, we haven’t seen any substantial reported action on the US front.

However, LG was able to score a big win in Europe by going to the Dutch legal authorities and obtaining this temporary ban (for those who are interested, LG used an EU law on customs action against goods suspected of infringing intellectual property rights).

Why Holland? Reports indicate that PS3s are brought over in container ships from the manufacturing base in Asia to the European distribution base in Holland, from which onwards distribution to the different European national markets is organised. So, by obtaining the temporary ban in Holland, LG has disrupted Sony’s European distribution network.

As to the practical impact of the ban on Sony, opinions on this differ. Some reports suggest that, since most retailers have 2-3 weeks supply of PS3s already, the impact would be muted. On the other hand, the longer this drags on, the greater the potential for it to become a real problem.

In the meantime, it’s not completely plain-sailing for LG for two reasons:

(1) The ban is only temporary – typically ‘up to ten days’ under the normal rules in these cases. LG will need to go back to the Dutch legal authorities if it wants to extend the ban, while Sony will of course be seeking to end the ban.

(2) If a judge later finds that LG was wrong to seek the ban in the first place (ie its patent infringement claim is wrong), then it will in principle be liable to Sony for financial damages to compensate Sony for the harm caused by the ban – quite apart from the PR blow that LG would suffer.

On the other hand, if a judge ultimately rules in LG’s favour, then in principle Sony would be liable to pay LG effectively to compensate it for Sony’s patent infringement.

IS THERE A LOOPHOLE FOR SONY?

Some press reports suggested that there is a loophole for Sony, ie the temporary ban applies only to Holland and therefore Sony could simply get the PS3s into Europe through other ports. This is technically correct legally because the current ban only applies to Holland, but I suspect a ‘loophole’ is unlikely in reality:

(1) It is much easier said than done for Sony to change its entire European distribution network. It takes weeks for container ships to reach Europe, then they have to be sent to the right kind of port, which also has to have on-shore distribution facilities. All of that is currently set up in Holland and it can’t be easily replicated elsewhere. I suspect it would be difficult to fly substantial amounts of PS3s into Europe on any economic scale.

(2) In any event, even if Sony was able to make alternative temporary distribution arrangements, that would be treating the symptom (the Dutch ban) not the cause (the dispute with LG). LG could potentially just go to each European port and seek a similar ban (albeit we don’t know if they would have the same success). One last point: the Daily Mail reported yesterday that the PS3 importation ban has been extended to the UK, but that has not been corroborated so far as I’m aware by HMRC, Sony or LG.

SO WHAT’S NEXT?

It’s impossible to predict the twists and turns a lawsuit can go through, but some things are clear:

  • The case may or may not settle at any time of course, if the parties are able to resolve their differences. If it doesn’t, Sony and LG will need to go back before the Dutch legal authorities regarding the current ban there in the next few days.
  • If LG wants to pursue its patent infringement case in Europe further, it will likely need to do so in each European country – there isn’t a simple pan-European patent framework for it to rely upon.
  • The legal action in the US is ongoing and could catch up with Europe at any time – which could cause headaches for both LG and Sony.
  • If the lawsuit does drag on, and if stocks of PS3s are affected, then it could quickly affect everyone in the PS3 supply chain – from Sony to its developers to the consumer.



KEY TIPS FROM THE CASE:

  • Hardware manufacturers should pay attention to this case and consider how well their intellectual property rights, particularly their patents, are protected.
  • Don’t just look at your home market(s) – issues in other European countries can quickly affect you too.
  • Don’t assume that your legal issues will occur just within the games industry itself.
  • Everyone should be aware that these kinds of bans/freezing orders aren’t restricted to patent infringement – they can in principle be obtained where there has been other IP infringement or possibly even if there is just a contract dispute.

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Hacker jailbreaks PS3, pwned by Sony

Last week news emerged that a group of hackers, led by one George Hotz, have jailbroken the PS3 – in other words, they had successfully circumvented the security measures put in place by Sony to prevent users from running whatever programs they like on the PS3.  
This has caused shockwaves to say the least, particularly given Sony’s previous claims regarding the impregnability of the PS3.  You can read more about what happened regarding the hack itself via the BBC or have a look at Rob Fahey’s editorial about it on Gamesindustry.biz.
Ofc, I’m interested in the legal aspects of this incident.  As, it seems, are the handful of my readers who emailed me to ask what might happen to George Hotz as a result of his hacking escapades.  And the answer is….Sony are suing him.
As Gamesindustry.biz reports:
“[Sony] alleges the defendants “circumvented effective technological protection measures” for the PlayStation 3 and other copyrighted works, and “trafficked in circumvention technology, products, services, methods, codes, software tools, devices, including but not limited to the Elliptic Curve Digital Signature Algorithm Keys, encryption and/or decryption keys, dePKG firmware decrypter program, Signing Tools, 3.55 Firmware Jailbreak, and/or any other technologies that enable unauthorized access to and/or copying of PS3 Systems and other copyrighted works.
Sony alleges the defendants have violated the Digital Millenium Copyright Act, the Computer Fraud and Abuse Act, the Copyright Act and related state and common laws covered by the California Comprehensive Computer Data Access and Fraud Act, according to legal filings published by Hotz.  “
Thoughts
A DCMA action was pretty much inevitable once word of this got out.  For non-US readers: the DMCA makes it illegal for you to try to circumvent technological protection measures which a software company puts in place to protect its software (the equivalent in the UK is in the Copyright, Designs and Patents Act 1988 – you can read more about that here in the context of modchips).  One example is The Warden, the anti-bot program used in World of Warcraft (and recently in the court’s spotlight as part of the WoW Glider case).  Another is the technical measures put in place by Sony in the PS3 which Hotz has now broken.  Difficult for me to see how Hotz will be able to avoid a successful DMCA claim, personally.

UPDATE: Jono793 points out that there could be complications in Sony’s DMCA argument given that it was only a flaw in Sony’s security which allowed Hotz to jailbreak the PS3 in the first place.  I imagine this would mean an enquiry into the arcane detail of the DMCA in order to determine whether that is a problem for Sony.  However, it seems to me that if the court allowed a loophole for circumvention devices which do not work properly, it would be opening the floodgates to that argument in every DMCA case going forward – perhaps unlikely therefore.

Then there are some other claims being advanced by Sony.  The copyright claim is another no-brainer and goes hand-in-hand with the DMCA claim.  I imagine the copyright argument goes something like this: the PS3 console software is a copyright work, which you are only allowed to use in accordance with a EULA.  If you jailbreak that software, you are outside the scope of the EULA and therefore likely committing copyright infringement.  Which is a Bad Thing – not least because, in the USA, it can lead to huge damages awards against the infringer.

UPDATE: As Artfunkel notes in the comments below, the copyright claim might not be that straightforward to run.  After all, a jailbroken PS3 runs the same software – the same games – as a vanilla PS3.  Sony could ofc argue that a jailbroken PS3 is a breach of the EULA and therefore automatically copyright infringement – but that argument didn’t get very far in the WoW Glider appeal recently.  If this case fights, there could be some complex legal argument here.
Lastly, there is what looks like a claim over the act of hacking itself.  Again, no surprises there: generally it is illegal to hack software belonging to someone else, regardless of what you do with the fruit of that hacking – whether it  be private use or public dissemination.  Sony is of course using a Californian statute; for those who are interested, the principal UK equivalent is the Computer Misuse Act 1993, which you can read more about here.
So, all in all, no great surprises here – Sony really had no choice but to take these actions.  In practical terms, it seems they are applying for a restraining order and injunction against Hotz, which if successful would at least stop him distributing the hack.  Good luck to them.
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